Construction Week Newsletter 2nd October 2004

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By  Eudore Chand Published  October 2, 2004

Editorial Leader|~||~||~|

Competition: a force for good?

Those who live in and around Dubai are well aware of the proactive spirit of its policy makers. Equally, the Dubai government is quick to identify potential or incipient problems and for taking remedial steps to counteract the harmful effects of what could possibly grow into a much larger issue if left unattended for long. Just such a decision was taken to help alleviate one of the problems of success that the emirate is facing. Because money is being spent in large amounts on very large projects, the capacity of the construction industry to cope with the sheer size of projects is being severely stretched. This means that the smaller jobs, the traditional jobs, the villas and small apartment blocks, are just not getting done. They have become “just not worth it.” Everybody is so busy that nobody has time to do the routine bread and butter jobs of the contracting and construction industry. There are some knock-on effects in the larger projects too. It is known to me that one major developer could not for some time find a replacement for a subcontractor it had fired, such is the shortage in supply. Not that the UAE does not have enough people in the construction sector. It is the single largest employer in the country and the second largest sector after oil and gas. When you take industry segments like architects, consultants, designers, lawyers, developers, financiers and specialist bankers, HSE experts and not forgetting the armies of the suppliers, one would have thought that this sector would have had enough people. The general contracting segment alone counts a massive 17 000 companies employing 346 000 workers. But apparently this is not enough. To help alleviate the problem, the licensing authority, the Dubai Department of Economic Development, recently did away with the Dhs1 million bank guarantee required for a firm to have if they wanted a contracting licence (Issue 40). Now anyone who can put up Dhs10 000 of extra cash and an easily obtainable bank guarantee of Dhs300 000 can get a licence. It is that easy. In the short term, the industry expects an influx of new entrants wishing to literally cash in on the on-going boom. There is work to be had, though perhaps not on the glamorous waterfront projects, but in the traditional residential, commercial and villa sector. But in the longer run, the entry of a large group of inexperienced businesses armed only with entrepreneurial spirit and dollar signs in their eyes could have some negative effects on the sector. Construction is a specialist sector, which requires specific skills and engineering knowledge. It is an intricate and complex business with far more than average components and factors impacting on it. Safety is a big concern; both during construction and after it. If lots of new inexperienced firms are encouraged to enter the sector it could lead to building problems that do not need to be spelt out here. It could also have another effect. Lots of competitors will mean under cutting and under bidding. Margins of 1% or less are not unknown nor are cases of contractors taking up projects at a loss just to keep the cash flow going even in the current climate. More competition could well make the situation worse. Of course, ultimately, market forces will weed out the lesser players. Competition is always ultimately healthy. But the process is generally painful, and in this industry, the pain may well be felt in substandard materials and buildings that will haunt their occupiers for years to come. The UAE must adopt international building standards, and set about enforcing them by introducing a government based inspectorate that at least ensures that material and fittings that go into a building are up to the standards required for safety. This would at least set the boundaries to the free market that is the UAE construction industry and allow competition to flourish as it should: getting the best for least, maintaining standards and a responsible market for the least cost.||**||

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